Local software to be cheaper, imports costlier

The government is going to withdraw the value-added tax from locally developed software according to the proposed budget, which will help boost the sector, said experts and developers.

Currently, there is a VAT of 5.5 percent both on locally developed and imported software. According to the proposal, the government is declaring it a VAT free product to incentivise the locally developed software industry.

On the other hand, Finance Minister AMA Muhith proposed to increase the supplementary duty on all kinds of database software to 25 percent from 2 percent, and other computer software to 10 percent from 5 percent.

Software developers have congratulated the government for its decision, terming it a milestone decision that will ultimately help achieve digitisation.

This will be an important decision in boosting the industry, said Mustafa Jabbar, president of Bangladesh Association of Software and Information Services (BASIS).

“Our software market is on track to hitting the billion dollar mark and a VAT free situation will help increase our local developers' stake,” said Jabbar.

After this decision is implemented, local software will be cheaper where as imported software will be costlier, which will also give an added advantage in bidding for government projects.

“Through this decision, on one hand we withdraw tax from the locally developed software and one the other hand, they will get protection from imported software,” said Muhith in his budget proposal.

Jabbar said local engineers are now developing smart and sophisticated software, competing with imported software as well.

Currently, the country earns more than $700 million a year to export software. However, some banking and financial software are still imported.

The government is purchasing a huge amount of software every year; the local developers will be in a competitive position after the decision is implemented, said Jabbar.

Recently, some banks and financial institutions have also chosen local software, as their quality has developed.

Shameem Ahsan, former president of BASIS, said so far, they are getting positive recommendations of the budget and they are welcoming it.

However, he also expressed his frustration as there is nothing mentioned about corporate tax on e-commerce business.

Earlier, the government withdrew taxes from computer and accessory imports. This year, it proposed to withdraw the VAT from the computer distribution process.

In the proposed budget, the finance minister also doubled allocation to Tk 3,974 crore for the Information and Communication Technology Division to help the digitisation process.

In the budget for 2016-17, the allocation was Tk 1,835 crore though the revised allocation is Tk 1,819 crore, according to the budget document. Apart from the ICT division, there are some other digitisation projects of the government as well under different ministries.

At the same time, Muhith also proposed to allocate Tk 2,521 crore against the telecommunications division.

Referring to the seventh five-year plan, the finance minister said they have already planned to set up 12 IT parks at the district headquarters and have taken initiatives to set up 7 IT training and incubation centres at seven locations across the country and to expand high speed fibre optic cable connectivity up to the union level.

Earlier, the industry also urged for cash incentives, but there is nothing mentioned on budget about it.